The chief executive of Hermes Investment Management has condemned the asset management industry for focussing on product launches rather than advising clients on the risks inherent in the “structurally flawed markets of today”.
The situation is so bad the industry faces a reputational crisis as heaped on bankers in the period following the 2008 global financial crisis and the fall of Lehman Brothers, he argues.
Chief executive Saker Nusseibeh says: “Managers seek to launch new products that capitalise on client’s difficulties in achieving their targets because of historically low interest rates – without questioning how extensively current asset valuations have been distorted relative to history.”
Nusseibeh condemns the industry for focussing on the next “does-what-it-says-on-the-tin product” instead of advising clients through the “interconnected risks inherent in the structurally flawed markets of today”.
“Such narrow-mindedness was erroneous in the years running up to 2008, but banks wore most of society’s scorn. I suspect that the industry’s reluctance to change in the interests of clients will not be overlooked by society again should another crisis develop.”
Nusseibeh says the coming decade will be “one of the most difficult that pension funds have faced”.
Long-term investors should commit themselves to growth, Nusseibeh says
“They should reject, or at least substantially reduce, their exposures to low- or negative-yielding bonds in favour of listed and unlisted assets with strong prospects of generating positive real returns, from active equities and credit to real estate, infrastructure and private debt.”
The industry’s reputation will not only be saved by providing long-term returns, but by using capital to push companies on environmental, social and governance factors.